Employees of small independent businesses would especially benefit from an expansion of accessibility and a simplification of rules applying to multiple employer plans, according to a report from Prudential Retirement.
Not to be confused with multiemployer plans, which are generally run by an independent board on behalf of labor unions or other related employee groups, multiple employer plans (MEPs) are established under ERISA 413(c). MEPs historically have been used by companies that share a common industry or payroll provider—primarily professional associations and other related employer organizations. However, as interest in outsourced fiduciary solutions has grown in recent years, a new generation of “open” MEPs for unrelated companies has also sprung up.
Prudential explains that, under current law, an MEP functions as a retirement plan established by one plan sponsor that is then adopted by one or more participating employers. When an employer merges its current single-employer plan into a properly structured MEP, the role of plan sponsor then transfers from the adopting employer to the named fiduciary sponsor of the MEP. The MEP sets up a single plan that covers all adopting employers, with the plan document generally written to allow for variation in plan design among the participating companies. Fund selection and monitoring generally are handled by the MEP. Discrimination testing and plan design—with some limitations—generally remain with the adopting employer. (See “Multiple Choice” for additional explanation.)
This description gives some sense of the challenge of running an MEP, Prudential notes. The research finds MEPs have been utilized successfully for years by trade associations and professional employee organizations that have the financial resources (or even the internal expertise) to tackle an impressively complex compliance picture for MEPs. However, smaller employers tend to lack excess resources and manpower, meaning the complexity of current MEP laws discourage or prevent most small employers from taking advantage of them.
Robert Doyle, vice president for government affairs at Prudential Retirement, notes that while a variety of solutions are possible to America’s retirement savings problem, “there appears to be a growing consensus that expanding MEP access could play a significant role in bringing retirement savings opportunities to millions more working Americans.” He points to recent data from the Employee Benefits Research Institute to underline the point—showing people earning between $30,000 and $50,000 per year are 16.4 times more likely to save for retirement if they have access to a workplace plan.
“Ignoring the current retirement coverage gap is a disservice to millions of hardworking Americans who need help preparing for retirement,” adds Jaime Kalamarides, senior vice president for institutional investment solutions at Prudential Retirement, and one of the authors of the paper. “Making it easier for small employers to participate in MEPs would go a long way toward improving retirement outcomes.”
Prudential researchers say they are encouraged by the bipartisan support in both houses of the U.S. Congress for improving small employer access to MEPs, for example through the Retirement Security Act of 2015, which would provide among other things that a qualified MEP “shall not fail to be treated as an employee pension benefit plan or pension plan solely because the employers sponsoring the plan share no common interest.”
Prudential finds removing MEP constraints is endorsed not only by several Washington lawmakers on both sides of the political aisle, but also by the U.S. Chamber of Commerce, AARP, many affinity groups, and the financial services industry at large.
For its part, Prudential is advocating for the creation of a new type of safe harbor model MEP under federal benefits law that would incorporate the following features:
- Automatic enrollment of employees and automatic escalation of employee contributions;
- Automatic deferral of employee contributions into an investment option designed to preserve principal, and after four years, contributions would be made to a qualified default investment alternative, such as a target-date fund;
- A lifetime income solution among the plan’s investment and/or distribution options;
- Streamlined administration through standardized plan design; and
- Clear delineation of fiduciary and administrative responsibilities, ensuring that each plan is managed in the best interests of its participants and beneficiaries, with those responsibilities assumed by benefit and investment professionals rather than participating employers.
Prudential Retirement’s Bennett Kleinberg, vice president for institutional investment solutions and another author of “Multiple Employer Plan: Expanding Retirement Savings Opportunities,” says that revamping current rules will not only help to expand workplace savings opportunities, it will afford many more employees of small business access to professionally managed, institutionally priced retirement programs funded via convenient payroll deduction.
The researchers argue this “new breed of MEPs” would be open to a diverse universe of smaller employers and would be “managed by identifiable and accountable plan fiduciaries and professionals.” The plans should be designed such that small employers would be able to enjoy the same economies of scale currently enjoyed by larger employers, Prudential says, as well as limited fiduciary liability like those participating in collectively bargained multiemployer plans and association-sponsored multiple employer plans.
Prudential concludes the benefit of expanded MEP access will go beyond employees’ retirement accounts: Employee access to retirement savings opportunities in workplace also makes small employers more competitive with larger employers who can more easily assume the costs and responsibilities associated with running a tax-qualified retirement plan.
The full text of the paper is published here.